IBM Still Mired in Layoff Spiral

By Darryl K. Taft
2009-02-03

IBM Still Mired in Layoff Spiral
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As IBM continues to quietly lay off more than 4,800 workers, the company takes another blow to its image as documents leak about an effort called Project Match. Project Match helps IBM's U.S. and Canadian employees find jobs in countries where IBM is expanding, such as India and China, while IBM eliminates positions in the United States. Robert E. Kennedy, a professor at the University of Michigan's Ross School of Business, says global sourcing and offshoring are realities that IT infrastructure and software companies like IBM and their employees must come to accept. Also, as high-tech layoffs continue, what impact will there be on H-1B workers?

IBM continues to lay off employees and to take heat from employee groups for its practice of not providing more information such as exact numbers or other particulars on the layoffs. The word is IBM has eliminated nearly 5,000 positions since the action began in January, according to sources.

An IBM employee organization called Alliance@IBM says IBM has laid off more than 4,800 people, including 1,449 in Sales and Distribution, 1,419 in the IBM Software Group, 1,200 in IBM's Systems and Technology Group, 307 in IBM Finance, 193 in IBM Research, and 92 in human resources.

Meanwhile, according to reports, IBM has an effort called "Project Match" that aims to help IBM employees in the United States and Canada move overseas to work for IBM, or essentially "offshoring" themselves.

Although the Project Match initiative has been characterized as an either/or solution—where IBM employees are encouraged to either accept a job in India (or elsewhere) or lose their positions in the United States—it does not appear to be exactly that.

Of course, word of Project Match leaking as IBM is in the throes of a broad-based layoff that is a potential source of embarrassment for the company. The goal of the program—as stated in a document describing the program obtained by eWEEK—is not simply to displace workers or present them with unpalatable

The document says, "IBM has established Project Match to help you locate potential job opportunities in growth markets where your skills are in demand."

According to the document, countries where opportunities are available include Argentina, Brazil, Mexico, Czech Republic, Hungary, Nigeria, Poland, Romania, Russia, South Africa, India and China.

In addition, the Project Match document said, "Should you accept a position in one of these countries, IBM offers financial assistance to offset moving costs, [and] provides immigration support, such as visa assistance, and other support to help ease the transition of an international move."

Moreover, the document said:

Project Match is a fit for IBMers who are:

Eager to broaden their career and develop new business skills by living and working abroad—a valuable commodity in today's global economy.

Excited at the prospect of contributing to a developing economy, potentially taking on different job responsibilities.

Open to new experiences and cultures.

Satisfactory performers who have been notified of separation from IBM US or Canada and are willing to work on local terms and conditions.

Indeed, that last point is the kicker, as it points to employees who have been notified of "separation" from the company. Yet, IBM officials say Project Match is not intended as a primary outlet for such employees for a number of reasons—among them that the number of Project Match positions is limited.

Robert E. Kennedy, author with Ajay Sharma of a book on offshoring called "The Services Shift: Seizing the Ultimate Offshore Opportunity," executive director of the William E. Davidson Institute and the Tom Lantos Professor of Business Administration at the University of Michigan's Ross School of Business, told eWEEK he believes IBM has simply come to grips with the new global economy and is making use of talent available throughout the world to reach maximum productivity and efficiency.

In Kennedy's view, asking IBM to refrain from employing overseas workers directly affects U.S. consumers, slows innovation and hurts the company's overall health.

Regarding the IBM layoffs, Kennedy told eWEEK, "There are at least two big pressures driving this. One is, by far, there is an economic downturn and IBM sales are suffering so they have to make cuts. And two is that globalization has come to the service sector and IBM knows it can move some jobs offshore."

IBM has been "very aggressive" over the last five years in expanding in India, but also—up to now—has been keeping its employment level steady in the United States, Kennedy said. However, the jobs offshored to India have been primarily transaction-oriented jobs such as accounting and back-office functions or technical specialties such as SAP programming, he said.

"But I'd say about 80 to 90 percent of what's happening now in terms of IBM layoffs is from the business downturn," Kennedy said. "In terms of laying off sales and distribution personnel, that function is done locally. They can't move that—so at least for that part of the layoffs, that has nothing to do with offshoring."

However, for IBM Software Group layoffs, "it's a little harder to tell," Kennedy said, noting that some of the software group efforts such as "work that has to be done close to the customer like needs analysis and requirements" cannot be offshored, while other software development activities can be.

Kennedy compared the current situation in services and technology to that of the textile industry. He said there used to be more than 3 million people working in the textile industry in the United States. "But it makes more sense to do textiles in a low-income country," Kennedy said. "Would you rather pay $10 for a t-shirt made in South Carolina or $5 for one made in Sri Lanka? Consumers want the $5 shirt. If we shift to services it's the same thing."

Kennedy said he grew up in Omaha, Neb., which used to be the call center capital. But it was still relatively expensive and inefficient when compared with India, he said. A call center employee in India might cost $400 a month, whereas one in Omaha might cost up to five times that, he said. Plus Indian call center employees on average are better educated and thus make fewer mistakes and require less supervision than their U.S. counterparts, which makes for a less expensive, more efficient operation, he said.

"In the long run, the only way for this country to raise incomes is to have us do more and more productive things," Kennedy said. "Or put another way, the only way to raise living standards is to move out of low-productivity activities into high-productivity activities. And it's the low and middle value-added sectors moving offshore."

For instance, "GM is stuck with high-cost, medium-skilled engineers," Kennedy said. "That's one reason it takes GM seven years to go from concept to design to the showroom floor [to produce a new car model], whereas it takes Toyota only three years. If they were more into tapping into the best talent wherever it is in the world, GM would be in better shape today."

Likewise, "IBM has to employ people all over the world to service those customers in those countries they sell to," Kennedy said.

He added that he believes the reality for companies like IBM is that they need to find workers who can do the work efficiently and effectively. Sometimes workers who represent the best combination of talent and lower cost are in the United States. Other times, they are located overseas, Kennedy said.

However, he said, "I'm not really pro-global sourcing or offshoring; I'm not a cheerleader for it. But it's a trend that's happening and smart managers have to be able to understand it."

Meanwhile, layoffs at companies such as IBM have yet another consequence for some employees—particularly those with H-1B visas. When H-1B visa holders in the United States lose their jobs, they must leave the country.

The H-1B issue has long been a source of contention and that is no less the case in the current recession, when major technology companies are being forced to lay off highly skilled employees. In fact, some are calling for companies to let H-1B visa holders go before they lay off American workers.

Sen. Charles Grassley (R-Iowa) even wrote a letter to Microsoft CEO Steve Ballmer in January calling for Ballmer to "protect" American workers. Microsofthas announced plans to cut up to 5,000 jobs. However, Microsoft Chairman Bill Gates has argued before Congress for increases to the cap on the number of H-1B visas allotted each year. Microsoft has been one of the top employers of H-1B talent over the last few years, with IBM not far behind.